Apple and Cisco to Negotiate iPhone Name Rights

Cisco Systems’ trademark lawsuit against Apple over the iPhone name went from “silly” to serious when Apple asked for a last-minute extension to the Jan. 31 deadline for responding to the suit.

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In a joint statement from the two companies released on Jan. 31, Apple and Cisco said they agreed to a new deadline of Feb. 15. The agreement was filed in the U.S. District Court in San Francisco. Apple’s initial response to the Cisco lawsuit was much more casual. “We think the Cisco lawsuit is just silly, because a number of other VOIP companies are already using the name iPhone,” Natalie Kerris, Apple’s director of music public relations, told eWEEK on Jan. 11. Contacted after the joint statement was released, Kerris refused to comment further, except to refer to the statement.

The aim of the extension is to allow more time for discussion between the two companies to try to reach an agreement on trademark rights and product interoperability, according to the joint statement. According to Cisco General Counsel Mark Chandler, the issue is not about money, royalties or an exchange for Cisco products and services, but rather about “an open approach,” he said in a blog on Cisco’s Web site. “We hoped our products could interoperate in the future. In our view, the network provides the basis to make this happen—it provides the foundation of innovation that allows converged devices to deliver the services that consumers want. Our goal was to take that to the next level by facilitating collaboration with Apple. And we wanted to make sure to differentiate the brands in a way that could work for both companies and not confuse people, since our products combine both web access and voice telephony. That’s it. Openness and clarity,” he said in his blog.

However, not everyone agrees that Cisco’s approach is charitable. “The issue is clearly just money,” said Craig Mathias, principal analyst at the Farpoint Group. “Apple might not have been as forthcoming as they might have been with Cisco, and when Cisco saw the size of the opportunity, they wanted to renegotiate,” he said. Mathias said that he’s certain that Apple and Cisco had an initial agreement about the use of the iPhone trademark before the announcement at MacWorld in January. However, as several sources have pointed out, no one outside of the two companies has actually seen that agreement. Mathias said that both sides agreed to the extension to avoid going to court. “That really is the whole point. No one is horribly interested in going to court over this whole matter,” he said.

Mathias said that he thinks Apple originally told Cisco that the iPhone would be a more limited product than it turned out to be. “Maybe a cordless phone or a handset,” he suggested. “They have some sort of agreement to wait a few months before they let the fur fly,” said Lee Bromberg, founding partner of the intellectual property law firm Bromberg & Sunstein, LLP in Boston. “They will send something to the court saying what they want to do, and I’m sure the court will accommodate them,” he said. “Cisco would ordinarily win the battle on the trademark front,” Bromberg said, but he suggested that this may be why negotiations started up again when Apple realized this. “They’re saying maybe there’s a way we can live and let live. Just let the marketplace deal with the issue in an effective way,” he said.

Since Cisco filed the lawsuit earlier in January after Apple launched the iPhone without an agreement, Apple has had time to do “more homework” and crystallize its thinking around the suit,” said Arnie Silverman, former chairman of the intellectual property department and a partner at Eckert, Seamans, Cherin and Mellott in Pittsburgh, Pa.

Apple may now see the potential for an amicable settlement without having to go to court, he added. But the agreement between the two companies to extend the deadline doesn’t necessarily “suggest a sign of weakness on either side,” said Silverman. “It comes down to what is it that prompted Apple to go ahead when on the surface it appeared that they would run a high risk of violating someone else’s trademark. Maybe they are taking the position that the term really isn’t a very strong trademark because [the letter] ‘i’ is often used for Internet and they’re feeling that [the word] ‘phone’ is descriptive of the product they are offering. That makes it more difficult to conclude someone’s violated a trademark,” he said.

Bromberg said that the real test of whether a company can share a trademark is whether there’s a likelihood that customers will be confused, which he thinks is unlikely considering the nature of the two products. “It’s possible to have both marks out there, and it’s possible for the customers to get what they want,” Bromberg said. “They don’t want to spend the money fighting about it.” Bromberg said that he thinks the most likely scenario is that the two companies will come to a financial arrangement regarding the iPhone trademark. “They’re probably sitting around the table trying to figure out which scenario will work for them,” Bromberg said. “They want to avoid putting the whole controversy in the hands of a judge, who might disappoint one party and perhaps both parties,” he said.

“My guess is that what they’ll come out with is Apple able to use the iPhone mark with some kind of compensation going to Cisco,” Bromberg predicted. “Probably from the Apple perspective they’re going to want finality, so they might want to buy it outright, and maybe license it back to Cisco,” he said.

Mathias said that he’s confident that a solution in which Apple buys the rights in some manner from Cisco ultimately comes out of the negotiations. “There’s no problem in human relationships that can’t be solved with a suitable application of money,” Mathias said. “I’d be amazed if this ever wound up in court.” Mathias said that he thinks that the iPhone is worth Apple’s trouble to settle with Cisco, even if the price is high. “I think it defines a whole new category of mobile device,” Mathias said. “They will sell 10 million in the first year without breaking a sweat.”

Mathias said that those sales predictions assume that the iPhone works as advertised. But he also predicted that Apple won’t be alone, pointing out that there are already iPhone imitators on the market. “First International Computer has one running Linux,” he said. In fact, at least three other companies had already been marketing products dubbed iPhone when the news of the lawsuit first broke. Those companies include Teledex, Nex-Tech and Etronicsland.